Evidence from U.S. States and Across Countries

We hypothesize that the spread of the Internet has reduced corruption, chiey through two mech-anisms. First, the Internet facilitates the dissemination of information about corrupt behavior, which raises the detection risks to shady bureaucrats and politicians. Second, the Internet has reduced the interface between bureaucrats and the public. Using cross-country data and data for the U.S. states, we test this hypothesis. Data spans the period during which the Internet has been in operation. In order to address the potential endogeneity problem, we develop a novel identi\u85cation strategy for Internet di¤u-sion. Digital equipment is highly sensitive to power disruption: it leads to equipment failure and damage. Even very short disruptions (less than 1/60th of a second) can have such consequences. Accordingly, more frequent power failures will increase the user cost of IT capital; either directly, through depreciation, or indirectly, through the costs of protective devises. Ceteris paribus, we expect that higher IT user costs will lower the speed of Internet di¤usion. A natural phenomenon which causes a major part of annual power disruptions globally is lightning activity. Lightning therefore provides exogenous variation in the user cost of IT capital. Based on global satellite data from the U.S. National Aeronautics and Space Administration (NASA), we construct lightning density data for a large cross section of countries and fo